A Wash
This was a report filled with resounding tranquility. The US (mostly TX) lost 600 kb as compared to our guess of 350 kb. There was a draw of 700 kb in production from world old crop, but then consumption was a small surprise, dropping 1.2 Mb for this year. It all came out to end stocks lower by 600 kb in the US, and 500 kb in the world. Reaction was neutral, other than Dec 20 rising 60 ticks.
Worth noting was Aussie production falling below 1.0 Mb to only 850 kb. Last time anything near this dire was 12 years ago. Rabo calls this crop 720 kb, so this is a confirmed absolute disaster.
The cut in world consumption comes at a time when demand has been good for cotton, a little confusing. China was down 1.0 Mb, Pak down 100 kb, Viet down 200 kb. For the bulls out there, this certainly has to throw up some caution.
Varner View
Cuts on both sides of the balance sheet were nearly equal, once again cementing an idea of price neutrality, some would call it price boredom. World carryout and ratio changed not an inch, but there was some change for the US. A 5.5 Mb is a lot smaller than what was once possible back in June, which was potentially up to 9.0 Mb. However, it is still highest in 11 years. Carryout ratio of 28.1% is on par with year ago at 27.4% and 15/16 at 29.8%. High/lows for those years in order were 9057/6023 and 7514/5566. This year’s low looks in place, and a move +70c seems theoretically possible. Another interesting statistic is that for 4 years running, world end stocks and ratios are nearly the same. However, the world has been transitioning from China’s massive hoarding to something only slightly burdensome. This market needs a powerful, outside force to give any kind of price volatility a chance to run – such as a cheaper $.
Technicals
The spot chart has gotten a little rosier, with Mar pushing into 6600 resistance. This area contains 3 previous lows from Aug 2016 at 6522, July 2017 at 6649, and Oct 2018 at 6684. The spot month has tested and tried to punch through this level for 9 straight weeks, so a close better than 6650 would be significant. The Mar daily chart shows what we think is a 4 wave low completed last week. Momentum and seasonals are positive.
Varner Brothers
325 Cotton Row Cleveland MS 38732
800-4-VARNER
(662) 846-6636
info@varnerbrothers.com
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